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An 850 FICO credit score has long been regarded the “holy grail” of good credit, the pinnacle of credit success, and a number many people strive for. But is it really necessary?
Some financial experts and bloggers say, “No.” In fact, according to some personal finance experts, an 850 credit score can actually hurt your chances to get the best rates on some loans. What?!
780 Is Good Enough
Mint.com blogger John Ulzheimer writes: “There is no incremental value to [a FICO score] higher than 780. A FICO score of 780, Ulzheimer says, puts you squarely amongst the “credit elite,” with the ability to get a credit card as low as 7.9% (or lower) and a car loan at 0% financing on some models. A FICO score of 760 is the magic number consider “excellent” credit, which will give you the best interest rates. You don’t want to hover at 760, though, because a single credit inquiry could drop your score below Elite Status.
Three Good Reasons Not to Stress About Your Score
If you already have excellent credit, it takes a lot of finagling and game playing to earn those extra few points to catapult you above 800 or even up to the highly-coveted 850. You need to look at your debt-to-available credit ratio, but also factors like the length of time your accounts have been open, and even the ratio of installment loans to revolving credit. If you’re in your 20s or even early 30s, it can be hard to attain a credit score of 800 + simply because you haven’t had accounts opened in your name as long as someone in their forties, fifties or older. That brings us to the number one reason not to stress about your FICO score…
1. You’ll drive yourself crazy. If you’re getting the interest rates you want, and are happy with how you manage your credit — and are already amongst the credit elite — leave your credit alone. Don’t go opening new accounts or playing tricks to eek a few extra points out of Fair Isaac.
2. It’s easier to bring a good score down than up. I love Ulzheimer’s analogy that credit scores are like water — they naturally flow downward, and it takes more energy to get them to rise. If you play games in an attempt to improve your already-excellent credit score, you may lose points, instead. Look at it this way: If you open a new account to diversify your credit, you’ve just given yourself a new credit card to manage and a payment to remember. Miss a payment and your score could plummet.
3. An 850 score could hurt your chances at obtaining new credit. Yes, this one surprised me too. But, according to Ulzheimer, a very high credit score probably means you’re not using credit. Which means credit card companies are not making money off you. And it’s no secret the credit card companies are hurting right now. Credit card issuers may shy away from anyone with a score of 800 or above. He pinpoints the “credit sweet spot” as a FICO score between 760 and 810, where you’ll get nearly any credit you apply for at the best rates available.
When an 850 is a Good Thing
While I don’t have as big a following as Ulzheimer as a personal finance blogger, I also covered this topic for Mint.com several months ago. The financial experts I spoke with had some very good reasons for consumers to strive for the elusive 850 FICO score, or close to it. The number one reason is the “breathing room” an 800 + score gives you to make a mistake. One late payment won’t drop you out of the excellent category.
One person I interviewed said his 800 + credit score got him an interest rate of 5.15% on a credit card — that’s lower than the interest rate on my mortgage! Some lenders may turn you down for having a credit score too high, but if you shop around, the chances are also very good that you’ll find a lender willing to give you a very low interest rate.
And, practical considerations aside, having an 800 + credit score gives you bragging rights and even offers some people the opportunity to be quoted on major personal finance websites. Isn’t that enough?